Energy debate – reckless right versus ludicrous left

The Organization for Economic Cooperation and Development has projected price increases in several commodities over the next five years due to biofuel policies – a 42 percent increase in coarse grain prices, a 34 percent increase in oilseeds and a 27 percent increase in wheat prices.
The problem with the food versus fuel energy discussion is that it generates much more heat than it does light. The devil is in the details.”
Markets have figured out how to accommodate the demand shock that came from corn being used in ethanol production with more acres, better technology and higher yields.

Does corn for ethanol help, or hurt the environment? Is it a politically-driven short-term hot button or a real long-term solution? Tough questions all, and the answers, according to a speaker at a recent CME Group webcast “generate much more heat than light.”

Ian Goldin, former vice president of the World Bank and currently director of Oxford University’s Oxford Martin School, wasn’t particularly enamored of corn for ethanol, believing it falls flat on three fronts — food versus fuel, environment and economics.

“It’s absolutely clear that corn ethanol in the United States and Europe is driving up food prices. The only question is how much. Studies have shown a range of impact on food prices of 30 percent to 50 percent. The problem with the food versus fuel energy discussion is that it generates much more heat than it does light. The devil is in the details.”

Goldin says carbon and environmental impacts from using food commodities for fuel can be minimized as long as commodities are not grown in new soil. “But as we consider the doubling of ethanol production over the coming year in Europe and the United States, and as Brazil moves production into marginal forests, then you get increases in carbon dioxide emissions and greenhouse gases, not decreases.”

Goldin also lambasted the use of subsidies to achieve biofuel targets. “It’s $7 billion a year in the United States and $5 billion a year in Europe. It will be moving up to about $25 billion combined going forward. It is a lawyer’s and lobbyist’s dream, and an economist’s nightmare.”

Goldin noted that the Organization for Economic Cooperation and Development has projected price increases in several commodities over the next five years due to biofuel policies — a 42 percent increase in coarse grain prices, a 34 percent increase in oilseeds and a 27 percent increase in wheat prices.

Tim Gallagher, executive vice president, grain and biofuels, Bunge North America, says Bunge “supports global biofuel development,” as long as the world can maintain a balance between production and consumption of corn.

“A lot of things have changed since 2008, when it was such a big debate,” Gallagher said. “Back then, we had a big increase in the mandates, and we saw some price impacts. But since then, the markets have figured out how to accommodate the demand shock that came from corn being used in ethanol production. We got more acres, better technology from a seed perspective and higher yields.”

Despite this, Bunge has taken a cautious approach relative to biofuels, according to Gallagher. “We’ve made a significant investment in sugar ethanol in Brazil, but our investments in the United States have been relatively modest.”

Much work remains

Gallagher says a lot of work remains to make biofuels workable. “We need to engage the private sector to promote sustainable biofuel production. We need to engage the government to offer financial incentives to meet long-term biofuel goals.

“We also need to address the consumptive side — fuel efficiency, alternative fuels, energy conservation. We need to support policies and market solutions that don’t have fixed mandates and that are more market oriented. We need to continue to support research in seed technology, so as the demand base grows we can continue to supply the product. We need to continue to support alternative methods of biofuel/biomass production.”

Gallagher said government subsidies for ethanol production “are simply the way things are done these days. Let’s be realists. Governments do what governments do. The onus is on us to make sure that policy is as market-oriented as we can get in order to drive this industry. As we look at what is driving this, it’s government and government incentives. Those are realities and are probably not going away anytime soon.”

John Hofmeister, former president of Shell Oil Co., and currently CEO of Citizens for Affordable Energy, believes the United States and Western Europe “are inevitably headed for an energy abyss. When the president of the United States says we need a new energy system for the 21st century, and therefore we need wind, solar and biofuels, it’s a laughable comment. It makes no sense. These are substitutes on a very small scale. We are frittering at the edges, while we are starving the larger infrastructure from the kind of investment that’s really needed, and we make it up with food. Come on. We can do better than that.”

Hofmeister says energy “must be ubiquitous, and it has to be continuous. The problem with solar and wind is that they’re neither. To create a political agenda predicated on such ideology is superficial thinking. Energy is a source of economic strength and national security, but I think it’s tearing this nation apart.

“Elsewhere around the world, you don’t find the kinds of adversarial conversations between government and industry. I’ve said before that we should beware of the reckless right, they’ll destroy the earth. We should also beware of the ludicrous left, they’ll destroy society. The pragmatic middle is really where energy needs to be sourced. Energy has to come from technology and natural resources.”

Alternative feedstock for biodiesel could come from algae, and from various grasses for ethanol, according to Hofmeister. “But the real issue has to come down to this. If we have an uninformed citizenry who don’t pay attention to the issues of energy, then we will get what we get.”